APPLE INC – SUPPLY CHAIN

Is Apple’s Supply Chain

Really the No. 1? A Case
Study

How Complex is Apple's Supply Chain? Some people

in the blogosphere said that Apple's Supply Chain is
not that complicated. By SupplyChainOpz
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Is Apple Supply Chain Really the No. 1?

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Everything about Apple Inc is the talk of the town, for example, the new
iPad, iPhone 5, Apple Map or even environmental and labor issues at its
suppliers’ facilities.
Surprisingly, IT research firm Gartner ranks Apple Supply Chain as the
best supply chain in the world for 3 years in a row.
Without a doubt, Apple Inc is the world leader in Innovation, Branding and
Software Ecosystem. But, is Apple’s Supply Chain really the number 1?
This case study will show you the analysis of Apple’s Supply Chain core
processes, challenging issues and complexities of its operations.
1) Apple’s Supply Chain Model
Information about Apple Supply Chain is a bit here, there and everywhere,
it’s kinda tough to find the actual case study.
To the best of my knowledge, many business schools still use the case
study “Apple Computer’s Supplier Hubs: A Tale of Three Cities” from
Stanford University (1996).
To get a closer look at modern day supply chain at Apple Inc, this case
study utilizes content analysis technique. Apple’s Annual Report (SEC
Filing) of 2011 is analyzed and simplified supply chain processes are
constructed as below;

Supply Chain Planning at Apple Inc

Supply Chain Planning at Apple Inc is the classic example of New Product
Development Process (NPD). It’s the integration of R&D, Marketing and
various function under supply chain management. From the above graphic,
Apple Inc accelerates the new product introduction by acquiring licensing
and 3rd party businesses. The whole process looks very similar to that of
other industries. Interesting point is that Apple Inc has to make pre-
payments to some suppliers to secure strategic raw materials.
 Supply Chain Model of Apple Inc
Supply Chain Map is the way to express large system from points of origin
to points of consumption in simple to understand manner. Information
from annual report is also used to produce Apple Supply Chain Map.
Apple Inc purchases raw materials from various sources then get them
shipped to assembling plant in China. From there, assembler will ship
products directly to consumers (via UPS/Fedex) for those who buy from
Apple’s Online Store.
For other distribution channels such as retail stores, direct sales and other
distributors, Apple Inc will keep products at Elk Grove, California (where
central warehouse and call center are located) and supply products from
there. At the end of product’s life, customer can send products back to
nearest Apple Stores or dedicated recycling facilities.
2) Apple’s Supply Chain Challenges
What does it feel like to be “Apple Inc”? One journalist indicated that the
life of Apple Inc is fairly easy by utilizing its negotiation power. Believe
me, Apple Supply Chain has very high risks. There are many challenges to
overcome, for example;
 Global economy could affect the Company.
 Some re-sellers may also distribute products from competing manufacturers.
 Inventories can become obsolete or exceed anticipated demand.
 Some components are currently obtained from single or limited sources.
 Some custom components are not common to the rest of the industries.
 Ability to obtain components in sufficient quantities is important.
 Supply chain disruption such as natural and man-made disasters can be
serious.
 Company depends on logistical services provided by outsourcing partners.
 Company also relies on its partners to adhere to supplier code of conduct.
The above information is also from annual report. As you can see, most of
the risks are on supply side.
3) How Complex is Apple’s Supply Chain?
Some people in blogosphere said that Apple Supply Chain is not that
complicated. So this section will explain some characteristics of Apple
Supply Chain through various metrics and compare them with Amazon
Supply Chain.
Inventory Turnover 
Inventory Turnover is traditional financial measure to determine how
efficient company uses its financial resources to create sales, the higher
number is the better. Supply chain professionals also use this metric in
inventory management function. Generally accepted calculation is (Cost of
Goods Sold / Average Inventory).
 Inventory Turnover of Amazon vs Apple Inc.
The above picture shows that inventory turnover of Amazon and Apple is
10 and 59 respectively (cost of goods sold of digital content/downloadable
products are excluded). From the face value, Apple seems to be more
efficient.
Anyway, there is a reason for this. Apple Inc is now marketing company
with no manufacturing facility but Amazon is a distributor of general
merchandise. It’s pretty natural that Amazon has to keep more stocks then
inventory turnover can be much lower.
Number of Key Suppliers
Supply chain management is about relationship between trading partners.
Working closely with strategic suppliers will bring competitive advantage
to the firm.

Number of Key Vendors Amazon vs Apple

Apple recently said that they have about 156 key vendors across the globe.
This amount of suppliers is quite manageable. According to this
information, Amazon has about 3 million suppliers in total. Top 5% of this
is 300,000 suppliers, way more than that of Apple Inc.
Number of Warehouse Facilities
In the United States, transportation cost is the big portion of total logistics
cost. Then, good management of related function is essential.

Number of Warehouse Facilities Amazon vs Apple

Apple inc has central warehouse in California but Amazon has
approximately 28 warehouses from coast to coast. What Apple has to do is
to synchronize data between central warehouse and its own 246 stores +
customers. With appropriate level of automation, this kind of operations
can be done efficiently.
For Amazon, thing is more complicated than that. Amazon is known to
employ many PhD graduates in operations research/industrial engineering.
The reason is that Amazon distribution environment must be
mathematically solved through optimization method.
Typically, they have to determine how many facilities they should have,
where serves which market, items/quantity stored in each location, how to
manage transportation between warehouse-to-warehouse and warehouse to
customers in order to minimize cost and increase service level.
Number of Items (Stock Keeping Unit)
Stock Keeping Unit aka SKU is another indication of supply chain
complexity. One model of phone but different software inside is
considered different item/SKU.

Number of SKUs Amazon vs Apple

According to this, Amazon has about 170 million items on its catalog.
About 135 million items are physical products. For Apple, they have about
26,000 items (rough estimate, subject to change). The point is that, if you
have to make demand forecast, which one will more difficult for you, 135
million items or 26k items.
Product Life Cycle
Put it simple way, product life cycle is how long you can sell products (the
longer is the better).

Product Life Cycle Amazon vs Apple

From rough estimate, Amazon has some seasonal products such as summer
ware. They can only sell it for 3 months max. The life of Apple’s key
products are way more than 12 months. It goes without saying that demand
forecast of seasonal, short life cycle products is very very difficult to
estimate.
As you may notice, based on example characteristics, Amazon’s Supply
Chain is far more complicated than that of Apple Inc.
4) Conclusion
The results from the analysis of Apple’s processes, challenging issues and
complexities indicates that the success of its supply chain operations
depends on how well they manage supplier relationship. This includes
early supplier involvement in new product development, close
communication and supplier performance improvement/evaluation. Then,
Apple Inc is dubbed as “King of Outsourcing”.
In your opinion, does Apple Supply Chain deserve the number one
spot? Register, and let us know your comments below.
Editors Note: Original article posted on SupplyChainOpz

Source: http://www.supplychainopz.com/2013/01/is-apple-supply-chain-
really-no-

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Apple: A Global Leader in Supply Chain
Management
 kblack12     June 25, 2015
Company: Apple Inc

Industry: Technology/Computer Hardware & Software

CEO: Tim Cook

Web References: Apple Inc

Overview of Apple Inc.

Apple Inc., formerly Apple Computer, Inc. was founded by Steve Jobs, Steve Wozniak
and Ronald Wayne on April 1, 1976. By the summer of 1976 Ronald Wayne had left the
company but the two Steve’s persevered and launched the Apple 1 Computer.  This was
the first of many trend setting products to be developed and released by Apple over it’s
now near 40 year history.

While under the leadership of John Sculley, Jobs and Wozniak left Apple in 1985.
Steve Jobs returned to his roots in 1997 and eventually became CEO, taking control of
the company and bringing Apple back from near bankruptcy to profitability by
1998. Under the legendary leadership of the late Steve Jobs, the Apple brand was
successfully re-established, and is arguably the most innovative company in the world
today with a loyal customer base devoted to the brand.

Tim Cook, joined Apple in 1998 just after Steve Jobs re-entered the company, and
helped transform Apple’s messy operations into a global supply chain success.
He become Chief Operations Officer in 2005 and was handed picked by Jobs to take
over as CEO in 2011. Cook is a world-renowned supply chain expert who is credited
with streamlining Apple’s supply chain, helping create the most powerful supply chain in
the world.

Today Apple Inc. is a world leader in innovation, product design and development,

branding, marketing and software ecosystems. Its products and services
include: iPhone, iPad, iPod, Mac, Apple TV, Apple Watch, a portfolio of software
applications, operating systems, iCloud, accessories, service and support offerings.
They sell Apple products through their retail stores, online stores, direct sales force,
third-party cellular network carriers, wholesalers, and retailers.  They also sell digital
content and apps through the iTunes Store, iBooks Store, and Mac App Store.

Apple Inc. has evolved over the years, from its humble beginnings of products being
assembled in Steve Jobs garage to the “World’s Most Valuable Brand“, worth
$741.8 billion today.  Last year alone Apple reached 170.9 billion in revenues under
Cook’s leadership.  Much of Apple’s recent success is attributed to Cook streamlining
its supply chain by outsourcing manufacturing and helping the company
to reduce inventory levels.

A Glimpse into Apple’s Ever Evolving Supply Chain

When it comes to Apple’s supply chain management (SCM) practices, there are
conflicting views on their success but many people believe that its supply chain model,
extraordinary inventory control and sophisticated software systems are the secret
weapons that keep them on top of the global leader board.

Apple’s Supply Chain has ranked #1 in the world each year from 2010 to 2013 by
research firm Gartner. In 2014 Gartner placed Apple in a new masters category for
demonstrating sustained leadership in their supply chain and defining the very notion of
a “solution” supply chain, blazing new trails with its demand creation capabilities.
Information about Apple’s complete supply chain is secretive, for the most part, and
highly complex, but I was able to find a great example from financesonline.com,
breaking down the global relationship between Apple, its suppliers and manufacturers
and the people whose livelihood depends on the iPhone’s success, to give some
perspective.

Simplicity seems to be effective for Apple in more ways than one.  From their sleek
logo, to their clean product designs, to their slogan “think different”, right down to these
simplified supply chain planning and management models.

Supply Chain Planning at Apple Inc – Sourced from supplychain247.com

“Apple purchases components and materials from various suppliers and ships them via
air, to save time and money, to the assembling plants in China. From there, products
are shipped (via FedEx or UPS) directly to consumers who purchased Apple products
from their on-line store.” – Sourced from supplychain247.com

Supply Chain Map of Apple Inc. – Sourced from supplychain247.com

“Other distribution channels (retail stores and distributors), Apple stores products at
their central warehouse/call centre in Elk Grove, California and ships products from
there. At the end of product’s life, customer can send products back to nearest Apple
Stores or dedicated recycling facilities.” – Sourced from supplychain247.com

Key Factors Contributing to the Success of Apple’s Supply Chain

When Tim Cook came onboard he realized Apple’s supply chain was too complex.  He
made drastic changes over the years to streamline the process, generating huge cost
savings and improving service by:

 focusing on making great products using ground breaking innovation

 supplying products that are not seasonal and have a life cycle of more than 12
months
 reducing the number of warehouses to one centralized location in California
 synchronizing data between the central warehouse and its own stores and
customers, making operations more efficient and cost-effective
 outsourcing manufacturing and as a result reducing the manufacturing cycle time
  reducing the number of key suppliers involved in manufacturing, shipping and
storing
 requesting price reductions and asking suppliers to relocate closer to Apple’s
factories
 reducing the number of sku’s to approximately 26,000, to simplify and
help develop more accurate demand forecasts
 extraordinary inventory management

“Tim Cook believes that when it comes to technology such as smartphones, tablets and
laptops, inventory deprecates very, very quickly, losing 1-2% of value each week –
“inventory is fundamentally evil” he says. “You kind of want to manage it like you’re in
the dairy business. If it gets past its freshness date, you have a problem.”

“A great amount of Apple’s supply chain success can be attributed to them continuing to
design their products in California, while leveraging the lower cost of outsourcing
manufacturing to China.” – Original quote from Jonathan Hamilton (IT Consultant)

– Source Econlife

Apple’s Supply Chain Challenges

According to this case study Is Apple Supply Chain Really # 1?, their supply chain is
very risky and they have many challenges to overcome, for example:

 Global economy could affect the Company

  Some re-sellers may also distribute products from the competing manufacturers
 Inventories can become obsolete or exceed the anticipated demand
 Some components are currently obtained from the single or limited sources
 Some custom components are not common to the rest of the industries
 Ability to obtain components in sufficient quantities is important
 Supply chain disruption such as the natural and man-made disasters can be
serious
 Company depends on logistical services provided by outsourcing partners
 Company also relies on its partners to adhere to supplier code of conduct

Although Apple is recognized as a global leader in supply chain management, the

company has received criticism for its suppliers unethical labor practices; including child
labor, workers being seriously injured from repetitive motions during long shifts, and
stress-related worker suicides.

The Impact of Social Media on Apple’s Supply Chain

There is no evidence suggesting Apple uses social media to streamline its supply chain,
however social media has played a role in the evolution of its supply chain.

It’s no surprise that Apple’s supply chain has faced challenges.  A blog written in 2012
by former student, Cory Kingsbury, drew my attention to allegations of labour abuses at
an Apple supplier factory in China including child labor, serious physical injuries of
workers from repetitive motions during long shifts, and stress-related worker suicides.

Apple was called out by one of their fans, using social media to launch a protest
on Change.org over the allegations of suppliers violating labour laws. The message
spread like wildfire through various social media channels and “In less than 48 hours,
the petition grew from a few hundred supporters to more than 140,000, many of whom
identified themselves as Apple fans.” – Cory Kingsbury

These allegations caused many to question the strength and ethics of Apple’s supply
chain and demanded Apple “think different” and use their power to improve worker
conditions.

Apple’s Response to Outcry on Social Media

Apple responded by implementing a Supplier Code of Conduct and pledged to fight

worker abuses, committing to the highest standards of social and environmental
responsibility and ethical practices.
“Around the globe, Apple employees are united in bringing equality, human rights, and
respect for the environment to the deepest layers of our supply chain.” – Jeff
Williams, Senior VP of Operations
They also vowed to conduct internal audits to ensure suppliers are compliant, and any
violations of the Code could jeopardize their business relationship with Apple, up to and
including termination.   Apple committed to providing updates and reports on their
findings. Here is Apple’s most current report: 2015 Apple Supplier Responsibility
Report.

In an effort to make themselves even more transparent and gain back the trust of their
customers. Apple being notorious for keeping secrets, also shocked everyone when
they unveiled 97% of their overall supply chain, revealing names of 156 of their key
suppliers.

This is a great example of how Apple took a negative situation, spread quickly through
social media, and used it to strengthen their supply chain further.

Lessons Learned

While challenges with supply chain responsibility are not unique to Apple, the
company’s record profits and tremendous brand value make it an easy and highly
visible target. Despite the fact that Apple’s supply chain has faced challenges, they
continue to be a global leader in SCM.  Key factors attributing to their success include:
putting their customers first, streamlining processes to create exceptional inventory
management, outsourcing manufacturing, and by continuing to evolve their supply chain
to adapt to customer demands.

 7 Supply Chain Lessons from Steve Jobs

 7 Traits of Supply Chain Leader Tim Cook

Web References: 
Apple, Forbes, Wikipedia, BusinessInsider, SupplyChainOpz, Gartner, YouTube,

Soundcloud, TradeGecko, PhoneArena, Statista, FinanceOnline, SupplyChainMauritius,

SupplyChainDigital, SupplyChain247, Econlife

Submitted By: Kelly Black, SMBP Student, University of Waterloo

To contact the author of this entry please email at: [email protected]

If you have concerns as to the accuracy of anything posted on this site please send
your concerns to Peter Carr, Programme Director, Social Media for Business
Performance.

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    Apple Inc, Blog, case study, Supply Chain Management

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